New York Law Review

Tag: Labor Law § 193

  • Labor Ready, Inc. v. Industrial Bd. of Appeals, 8 N.Y.3d 581 (2007): Prohibiting Unauthorized Wage Deductions

    Labor Ready, Inc. v. Industrial Bd. of Appeals, 8 N.Y.3d 581 (2007)

    An employer cannot deduct fees for cashing payroll vouchers from an employee’s wages unless such deductions are expressly authorized by statute and benefit the employee, even if the employee has the option to receive a standard paycheck.

    Summary

    Labor Ready, a temporary employment firm, offered its employees the option of receiving their wages via a check or a cash voucher, which could only be redeemed at Labor Ready’s cash dispensing machines (CDMs) for a fee. The New York State Department of Labor investigated this practice and concluded it violated Labor Law. The Industrial Board of Appeals (IBA) reversed, finding the CDM fee a voluntary transaction. The Appellate Division reversed the IBA’s decision. The New York Court of Appeals affirmed the Appellate Division, holding that the fee was an unauthorized deduction from wages under Labor Law § 193 because it did not directly benefit the employee as required by the statute. The court emphasized the protective policy underlying the law, aimed at preventing employers from exploiting unequal bargaining power to divert workers’ wages.

    Facts

    Labor Ready supplied temporary manual laborers, paying them daily with the option of a payroll check or a cash voucher redeemable at the company’s CDM. The cash voucher included a fee deducted from the wages. Notices regarding the fees were posted at Labor Ready branches and on the CDM screens. In 2002, a significant percentage of employees chose the cash voucher option. The Department of Labor investigated complaints about unlawful deductions from wages, including CDM fees.

    Procedural History

    The Department of Labor issued an order finding Labor Ready in violation of Labor Law Article 6. Labor Ready settled issues related to transportation and equipment cost deductions but disputed the CDM fee issue. The Industrial Board of Appeals (IBA) found no violation of Labor Law § 193(1), determining the CDM charge was a separate, voluntary transaction. The Department of Labor then commenced a CPLR article 78 proceeding to annul the IBA’s determination. Supreme Court transferred the proceeding to the Appellate Division, which reversed. The Court of Appeals then affirmed the Appellate Division’s decision.

    Issue(s)

    Whether Labor Law § 193(1) prohibits an employer from charging a fee for cashing a payroll voucher against an employee’s wages, where the employee has the option to receive a standard payroll check but chooses the voucher for immediate cash payment.

    Holding

    Yes, because the fee constitutes an unauthorized deduction from wages that does not fall within the statutory exceptions and does not directly benefit the employee as required by Labor Law § 193.

    Court’s Reasoning

    The Court of Appeals held that the Appellate Division applied the correct standard of review and that the IBA’s interpretation contradicted the plain language of Labor Law § 193. The court emphasized that the purpose of Labor Law Article 6 is to protect employees’ rights to their wages. Section 193(1)(b) explicitly prohibits deductions from wages unless required by law or expressly authorized in writing by the employee for their benefit, listing specific types of permissible deductions, such as insurance premiums, pension contributions, and union dues. The court reasoned that the CDM fee was a direct deduction from wages and did not qualify as a “similar payment” or a “benefit” to the employee under the statute. While convenience may be a benefit, it is not the type of “benefit” contemplated by the statute. The court rejected Labor Ready’s argument that Section 193(2) applied because the CDM transaction was not truly separate from the payment of wages; the employee never receives a negotiable instrument. The court also noted that permitting such deductions would open the door to other potentially abusive practices. The court reasoned that implementing section 193 to permit deductions as long as the worker agrees and has an option could create loopholes to avoid the law, which was not the legislature’s intent. The court discussed legislative history indicating an intent to prohibit employers from using their superior bargaining power to exploit workers. As stated in the opinion, “The legislative history of Labor Law § 193 manifests the legislative intent to assure that the unequal bargaining power between an employer and an employee does not result in coercive economic arrangements by which the employer can divert a worker’s wages for the employer’s benefit.”

  • Gagnon v. Prudential Securities, Inc., 46 A.D.3d 149 (2004): Permissibility of Wage Deductions for Investment Plans

    Gagnon v. Prudential Securities, Inc., 46 A.D.3d 149 (2004)

    New York Labor Law § 193 permits employers, with informed employee authorization, to deduct wages for investment plans, even if the plan includes a forfeiture provision, provided the plan, viewed in its entirety, benefits the employee.

    Summary

    This case addresses whether Prudential’s MasterShare Plan, which allows financial advisors to defer taxes by deducting wages to purchase stock index fund shares, violates New York Labor Law § 193. The plan included a three-month deferral period without interest and a forfeiture clause if the employee left Prudential or was terminated for cause within three years. The court held that the plan did not violate the law because it provided benefits to the employee, such as tax deferral and discounted share purchases, outweighing the potential for forfeiture, especially given the employees’ financial sophistication and informed consent.

    Facts

    Prudential offered its financial advisors the MasterShare Plan, allowing them to deduct 5-25% of their gross pay to purchase shares in a stock index fund at a 25% discount. The deducted wages were held in a deferral account for three months without interest. Shares purchased were non-transferable and forfeitable for three years if the employee left Prudential or was terminated for cause. Gagnon, a financial advisor, participated in the plan. Prudential terminated Gagnon’s employment, and he forfeited approximately $165,000 in his MasterShare account.

    Procedural History

    Gagnon sued Prudential in New Jersey state court, alleging the MasterShare Plan violated New York Labor Law § 193. Prudential removed the case to Federal District Court. The District Court granted Prudential’s motion for summary judgment, dismissing the Labor Law § 193 claim. The Third Circuit Court of Appeals certified a question to the New York Court of Appeals regarding the legality of the plan under Labor Law § 193. The New York Court of Appeals accepted certification.

    Issue(s)

    Whether New York Labor Law § 193 permits an employer, with an employee’s written and informed authorization, to enable that employee to defer wage taxes by making wage deductions and denying the employee any interest in those deducted wages for three months, and then investing the deducted wages in Standard & Poor’s 500-mirroring index fund shares that, while beneficially owned by the employee, are temporarily non-transferable and forfeitable to the employer if the employee quits or is terminated for cause.

    Holding

    Yes, because Labor Law § 193 allows employees to divert part of their earnings into investment plans, provided the plan, viewed in its entirety, benefits the employee, and the employee provides informed consent. The possibility of forfeiture on these facts does not warrant ineligibility under section 193.

    Court’s Reasoning

    The Court reasoned that Labor Law § 193 permits wage deductions expressly authorized by and for the benefit of the employee. It examined the history of the statute, noting that it was intended to prevent deductions for the employer’s benefit but allowed voluntary deductions for investments. The Court emphasized that the MasterShare Plan, offered to sophisticated financial advisors with full disclosure of the forfeiture risk, provided benefits such as tax deferral, discounted share purchases, and shareholder rights during the restricted period. The court stated, “Rather than adopt a per se rule, we believe that whether a wage deduction for investment is ‘for the benefit of the employee’ can be determined only by examining the investment plan in its entirety, giving due weight to the existence of a forfeiture provision.” The court distinguished this plan from deductions solely benefiting the employer, concluding that the disclosed risks did not negate the benefits these knowledgeable employees received from their voluntary participation in the program. The Court noted that the Department of Labor’s stance appeared to conflict with other departmental opinions that approve of wage deductions despite the possibility that the withheld funds could be forfeited, and stated that “wage deductions directed into the investment plan in this case qualify as ‘payments for the benefit of the employee,’ which are ‘similar’ to the types of wage withholdings specifically authorized by the statute”.

  • Hudacs v. Frito-Lay, Inc., 86 N.Y.2d 342 (1995): Employee Reimbursement for Unremitted Funds

    Hudacs v. Frito-Lay, Inc., 86 N.Y.2d 342 (1995)

    An employer does not violate Labor Law § 193 when it requires route salespeople to remit funds collected from customers, as these repayments are independent of wage payments and represent the return of company funds.

    Summary

    Frito-Lay employed route salespeople who delivered snacks to retailers and collected payments. Salespeople deposited cash payments into their own accounts and then remitted funds to Frito-Lay. The company required reimbursement for any discrepancies between products taken and money remitted, but allowed setoffs for spoilage, theft, or bounced checks. The Labor Commissioner argued this violated Labor Law § 193, which prohibits unauthorized wage deductions. The Court of Appeals held that requiring salespeople to remit collected funds did not violate the statute because the funds were company property, not wages, and the reimbursement was independent of wage payment.

    Facts

    Frito-Lay route salespeople picked up snack foods from warehouses, delivered them to retailers, and collected payments. Retailers paid via charge tickets, checks to Frito-Lay, or cash. Salespeople deposited cash into their personal accounts and then mailed checks or money orders (for cash receipts) to Frito-Lay. Frito-Lay reimbursed money order costs. Every 20 days, Frito-Lay issued accounting reports detailing transactions and requiring reimbursement for any discrepancies between product taken and money remitted. The company allowed setoffs for damaged goods, bounced checks, or theft.

    Procedural History

    The Commissioner of Labor issued an order to comply, alleging Frito-Lay’s practices violated Labor Law § 193. The Industrial Board of Appeals revoked the order, finding the payments independent from wages. Supreme Court reversed, reinstating the Commissioner’s order. The Appellate Division reversed again, upholding the Board’s determination. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether Frito-Lay violated Labor Law § 193 by requiring its route salespeople to remit moneys collected from customers upon delivery of inventory, when there were discrepancies between product taken and money remitted.

    Holding

    No, because the required payments were not deductions from wages, but rather the remittance of company funds temporarily entrusted to the employee’s control. The court reasoned these repayments to the company were unrelated to and independent from the payment of wages.

    Court’s Reasoning

    The Court reasoned that Labor Law § 193 prohibits unauthorized deductions from wages. While the statute forbids “any payment by separate transaction,” the Court interpreted this to refer to payments from wages, not the remittance of company funds. The funds collected by the salespeople were Frito-Lay’s property, and the company had a right to expect full remittance. The court distinguished this situation from typical service worker cases (cashiers, waiters) where shortages result from mishandling funds within the workplace. Frito-Lay employees had extended control over company funds, depositing them into personal accounts, creating an obligation to remit the funds. Allowing setoffs for losses not due to failure to remit funds aligned with the statute’s intent to place the risk of loss for damaged goods on the employer. The Court stated, “It is this element of extended control over funds belonging to the company outside of a discrete workplace that distinguishes this case from that of more typical service workers such as supermarket cashiers or waiters, and our decision today should not be read as validating payback schemes aimed at such employees.” The Court found the Board’s interpretation of the statute rational and consistent with its purpose. The court found that Labor Law § 193 was not intended to allow employees to refuse to fully remit funds they collect from customers to the company.